Tag Archives: Taxable income

What is Section 80C Deduction In Income Tax

Whenever we think of income tax, the first thing that immediately comes into our mind is how to save it !! One of the best options for Saving Income Taxes comes under Section 80C.

What Is Section 80C?
It is an investment option to save the tax. Government has specially promoted it for long term savings.

Limit:
The maximum limit of Rs 1 lac can be deducted from your income under Section 80C. However, there is a provision for additional Rs 20,000, solely reserved for Infrastructure Bonds. In this way if you are in highest tax bracket of 30% and you have invested upto Rs 1 lac under section 80C then you are saving Rs 30,000. For example if your salary is Rs 16 lacs per annum but you are investing Rs 1 lac in 80C then your taxable income will be Rs 15 lacs only. Even if you invest more than 1 lac in 80C, you can show only 1 lac as investment in 80C .

Investment:
Following investment options are eligible for Section 80C deduction.

Market Linked:

Fixed Income:

  • Provident Fund (PF) & Voluntary Provident Fund (VPF)
  • National Savings Certificate (NSC)
  • Infrastructure Bonds
  • Public Provident Fund (PPF)
  • 5-Yr bank fixed deposits (FDs)
  • Pension Funds – Section 80CCC
  • Senior Citizen Savings Scheme 2004 (SCSS)
  • 5-Yr post office time deposit (POTD) scheme
  • NABARD rural bonds

Others:

  • Life Insurance Premiums
  • Home Loan Principal Repayment
  • Stamp Duty and Registration Charges for a home
  • Children’s tuition fees.

Sample Calculation:

Example 1
If your Taxable Income is Rs.700000 and your yearly home loans principal repayment is Rs.40000 and you don’t have any other investments, then your Taxable Income for that financial year is Rs.700000 – Rs.40000 = Rs.660000.

Example 2
If your Taxable Income is Rs.700000 and your yearly home loans principal repayment is Rs.100000, then your Taxable Income is Rs.700000 – Rs.100000 = Rs.600000.

Example 3
If your Taxable Income is Rs.500000 and your yearly home loans principal repayment is Rs.140000, then your Taxable Income is Rs.500000 – Rs.100000 = Rs.400000. Because you can exempt maximum of one lac under this section.

So the overall conclusion is the main purpose of 80C is to encourage everybody for long term investment.But there are number of investment options under 80C so we should select the investment options very carefully. Like for younger age person, we should invest more in Market Linked Investment Avenues because by taking risk we can earn much money. On the other hand, for old aged person we should invest more in Fixed Income Investment where there is little risk.

Tax Benefit On Home Loans And Economics Of Purchasing Second House

All of us have a dream of owning  a house, no matter how small or big it may be. But one should not think of purchasing a house being just an emotional decision, in reality, it is one of the safest bet for your investments and a very good avenue for reducing income tax liability. Under the Income Tax Act, 1961 All Resident Indians are eligible for certain tax benefits on some portion of principal and interest components of their Home Loans.

There are two ways, in which you will be benefited, when you purchase a house and take a home loan. First one being Tax Exemptions and second one being the Usually High-Returns on your Investment made against your house, simply because of ever-rising property prices. With the recession all but over, housing sector is going to witness yet another boom. So if you have not bought a house yet, this could very well be your shot at redemption 🙂

Tax Benefits on First Home Loan:

If you purchase your first house, by-default it is taken as self-occupied. You will enjoy tax-exemptions via following two ways

  • Up to Rs 1 Lakh for Principal Repayment that can be claimed under section 80 C
  • Up to Rs. 1.5 Lakh on Interest Repayment, that will be deducted from your taxable income under Section 24.

Interest repayment comes under the heading of ‘Income From House Property‘ and is taken as a loss or negative amount.

Tax Benefit On Second Home Loan:

If your disposable income is high enough to afford a second home, then you can enjoy even more tax-benefits than the one you did on your first home !! Even though, you may already have a home loan running, banks are generally more than willing to finance your second house as well, provided your income is high enough to convince them about your loan-repayment-capability. Most of the people either let out their second home for rental income or make it the place for other family members.

Second house is not taken as a self-occupied house and you have to pay taxes for rental income from it. This income is calculated after deducting up to 30% on maintenance expenses and property taxes. You will again enjoy tax-exemptions via following two ways

  • Up to 1 Lakh for Principal Repayment under section 80 C
  • Unlimited Exemption on Interest Repayment, albeit with a difference. Loss from house property is calculated as Annual Interest Repayments minus the Adjusted Rental Income and this differential amount is  eligible for tax-benefits.

As you can see, there are more tax-incentives in store, when you go about buying the second house. But you should have enough money in order to afford a second home. Apart from owning a second house and earning a rental income, you also get more and more tax-exemptions. Now this is what we call Sone Pe Suhaga 🙂 Isn’t it ??

So…..when are you planning to buy a house ?? your first one, may be your second one 😉

Government Revises New Income Tax Slabs Introduced By DTC (Direct Tax Code)

When the newly proposed Income-Tax slabs were first announced to Indian mass as part of DTC (Direct Tax Code), government had to cop plenty of criticisms over being soft and lenient in taxing high-paying individuals and was even accused to be pro-rich. But now government has decided to scale down tax-reliefs promised earlier and revised the income-tax-slabs, proposed earlier in DTC (Direct Tax Code) 1st draft.

The modified Income-Tax rates and slabs are as follows:

Income Range Tax Rates
Up to Rs 2,00,000(Rs 2,50,000 for senior citizens) Nil
Rs 2,00,001 – Rs 5,00,000 10%
Rs 5,00,001 – Rs 10,00,000 20%
Above Rs 10,00,000 30%

As per this chart and comparing with the tax-slabs for financial year 2010 – 2011, the only real beneficiary of this change will be people, whose taxable income falls in the range Rs 8,00,000 to Rs 10,00,000. Earlier, they had to shell out 30% tax on incomes beyond Rs 8,00,000, now it will be reduced to 20%. DTC (Direct Tax Code) has also decided to do away with the preferential treatment given to Women and treats them at par with Men 🙂

According to government sources, this will be implemented from financial year 2011 – 2012 onwards, but you never know. When the first draft was announced, it was earlier planned to be in force from financial year 2010 – 2011 itself, but it never happened and was then pushed to next year. Let’s see, if it sees the light of day in year 2011 😉